Antigua and Barbuda Sales Tax (ABST):

1. Antigua and Barbuda Sales Tax (ABST): Presentation on draft ABST law

2. What do all these concepts mean? A broad-based, multi-stage transaction tax on value added broad-basedcharged on a wide range of goods & services multi-stagecharged at every level of the economic chain transaction tax charged on each transaction value added tax credit for businesses (output tax – input tax) means tax base ≈ salary & wages plus profits A consumption tax consumption  passed on to consumers in price of each consumer transaction; consumers cannot claim it back

3. What is a Supply? = a transaction involving at least two entities:a supplier who makes a supply to a recipient of the supply = the supplier does some act that:(a) causes something to pass from supplier to recipient; or(b) causes some benefit to arise for recipient = the recipient receives something tangible/intangible OR is conferred with a benefite.g. sale, lease, licence, creation of rights or obligations • Supplies may involve other entities (to whom the thing supplied is provided) but the tax consequences fall on the supplier and the recipient

4. Two kinds of supplies:supplies of goods and services Supplies of goods= sales, leases, licences, options to purchase, commodity futures: so long as they are supplies of tangible personal property & real property Supplies of services = any supply that isn’t of goods is a supply of services; e.g. service industries, IP, restrictive covenants, supplies of rights, lending money, etc. Q:Does it matter whether a supply is of goods or services? A:Yes; particularly for place of supply rules & export rules

5. Hotels & restaurants • Restaurantssupply & servefood & beverages:this is a supply of goods • Hotels supply services (serviced accommodation, internet access, telephone services, tours) and goods (food and beverages, use of yachts/diving equipment etc) • Hotels often supply rights to their goods & services in a separate transaction from the supply of the goods or services themselves: the rights are taxed if the goods or services themselves would be taxed

6. Who is required to pay ABST? On supplies: • RegisteredSuppliers collect it from recipients (customers) by including it in the price of supplies • Some registered persons who acquire services offshore (“imported services”) must charge ABST to themselves On imports: • All persons importing goods into Antigua and Barbuda (no registration requirement for importers);

7. How ABST works for businesses • ABST-registered businesses claim back ABST on most of their business inputs (input tax)(input tax includes tax paid on imports and on goods/services acquired from other registered businesses). • No input tax credits for private acquisitions, for purchases that relate to making exempt supplies, nor for cars (unless business = supplies of cars) • Input tax on capital acquisitions is immediately creditable – c.f. income tax depreciation

8. ABST for registered businesses • ABST charged on supplies = Output Tax ABST returnsare submitted for each tax period Net tax payable = OUTPUT tax – INPUT tax • Input tax that cannot be claimed back is also passed on to consumers (because it is part of cost of sales) • Must have an ABST Invoice to claim input tax credit If ABST invoice not received until a later period, the input tax is deducted in the later period

9. Global basis for calculations • Net ABST payable is calculated for each tax period • Input tax on a particular purchase does not have to be credited when the output tax is paid for the supply to which it relates • Rather, the input tax incurred in a tax period is credited against the output tax collected in that period. • Tracing is only required in a limited sense:for determining whether an acquisition relates to making exempt supplies or private purposes (and therefore is denied an input tax credit)

10. ABST for unregistered businesses • Unregisteredbusinesses cannot charge ABST on their supplies of goods and services and cannot claim back the input tax incurred on business inputs • No output tax and no input tax credits, therefore they are effectivelyinput taxed • Same as suppliers who makeexempt supplies • in both cases, the value addedby the unregistered or exempt supplier is not taxed • The uncreditable input tax on acquisitions is passed on in the prices charged to consumers • Effective rate of tax depends on proportion of price that represents untaxed value added.

11. How ABST works for consumers ABST operates like a retail sales tax on consumer purchases of goods and services in Antigua and Barbuda Consumers: • pay ABST on imports • are ‘charged’ 15% ABST when they buy goods or services from registered businesses • effectively pay partial ABST on purchases from unregistered businesses • prices will not go up by 15% because other taxes are being removed – services will go up more than goods; some prices will go down

12. Who will be registered? • To be registered you must: • be a taxable person (includespartnerships, trusts, and unincorporated entities) • be carrying on a taxable activity (wider than business) • have an annual turnover ≥ the registration threshold • A person with more than one taxable activity will only need to be registered once: persons are registered, not activities. • Some things are not counted in measuring the threshold: exempt supplies, other non-taxable supplies, sales of capital assets, closure of a business… …

13. Documentation requirements A registered person will be required to: • issue ABST invoices for taxable supplies to other registered persons • issue sales receipts showing ABST paid on taxable supplies to unregistered persons • advertise prices ABST-inclusive, stating how much ABST is included • display ABST registration certificate at places of business

14. To reiterate: TAXABLE supplies: • ABST payable; input tax credits allowed ZERO-RATED taxable supplies: • no ABST payable; input tax credits allowed EXEMPT supplies: • no ABST payable; no input tax credits TRANSACTIONS are exempt; not persons

15. To customs To IRD $9 $6 $30 $15 + + = $60 $9 $6 + $30 $15 Paper Advertising Material Paper Goods ABST Treatment:taxable supplies and imports $60- 45$15 $15- 9$6 $45- 15$30 Printer Retailer Consumer Importer Cost: $60 Value added: $40 Sell for:$100 plus ABST: $15 Taxed Price: $115 Cost: $100 Value added: $200 Sell for: $300plus ABST: $45 Taxed Price: $345 Cost: $300 Value added: $100 Sell for: $400plus ABST: $60Taxed Price: $460 Cost: $460(includes $60 tax)

16. + + = $0 $9 $6 + $3 - $18 ABST: Supply to consumer is zero-ratede.g. electricity subject to the basic charge To customs To IRD $9 - $18 $6 $3 $ 0- 18-$18 $15- 9$6 $18- 15$3 Printer APUA Consumer Importer Printed Invoices Paper Paper Electricity Cost: $60 Value added: $40 Sell for:$100 plus ABST: $15 Taxed Price: $115 Cost: $100 Value added: $20 Sell for: $120plus ABST: $18 Taxed Price: $138 Cost: $120 Value added: $80 Sell for: $200plus ABST: $0Taxed Price: $200 Cost: $200(no tax)

17. = $30 $30 ABST Treatment:Supplies zero-rated until retailer taxede.g. macaroni sold by a registered restaurant To IRD $30 $30- 0$30 300 Consumers Wholesaler Retailer Importer Macaroni Cheese Macaroni Macaroni Macaroni Cost: $60 Value added: $40 Sell for:$100 Cost: $100 Value added: $20 Sell for: $120 Cost: $120 Value added: $80 Sell for: $200plus ABST: $30Taxed Price: $230 Cost: $230(includes $30 tax)

18. + = $18 $9 $6 + $3 ABST: Supply to consumer is exempt(e.g. financial services) To customs To IRD $9 $6 $3 $15- 9$6 $18- 15$3 Wholesaler Bank Consumer Importer Cost: $60 Value added: $40 Sell for:$100 plus ABST: $15 Taxed Price: $115 Cost: $100 Value added: $20 Sell for: $120plus ABST: $18 Taxed Price: $138 Cost: $138 Value added: $80 Sell for: $218plus ABST: $0Taxed Price: $218 Cost: $218(includes $18 tax)

19. + + = $32 $9 $4 + $32 ABST: supply to retailer is exempte.g. financial services To IRD To customs $9 $6 $32 $32- 0$32 $15- 9$6 Bank Retailer Consumer Importer Cost: $60 Value added: $40 Sell for:$100 plus ABST: $15 Taxed Price: $115 Cost: $115 Value added: $20 Sell for: $135 Cost: $135 Value added: $80 Sell for: $215plus ABST: $32.25Taxed Price: $247.25 Cost: $247.25(includes $32.25 tax)

20. = $9 $9 ABST Treatment:all suppliers are under the threshold To customs $9 Wholesaler Retailer Consumer Importer Cost: $60 Value added: $40 Tax: $9 Sell for:$109 Cost: $109 Value added: $20 Sell for: $129 Cost: $129 Value added: $80 Sell for: $229 Cost: $229(includes $9 tax)

21. Time of supply • When do you account for ABST output & input tax? • If time of supply is in the current tax period • Time of supply is earlier of(a) when invoice issued(b) when all or part of the price is paid • Related parties – time of supply is earlier of above or time when goods are delivered or services are provided • Supplies that span periods (leases, licenses etc) – each part treated as a separate supply  therefore pay periodically and pay ABST periodically

22. Place of supply • Goods: place where goods are when supplied • Services: most are where supplier has place of business; some are where supply effectively used or enjoyed • Special rules for rights to receive supplies (relevant to hotels)

23. Zero-ratings for restaurants • basic foods are zero-rated, but restaurant food is not • ABST is more like a retail sales tax for restaurants because many inputs will not be taxed (therefore no input tax to claim back) • not entirely because rent of premises will be taxed, power & water will be taxed, equipment, cutlery & crockery etc all taxed therefore input tax credits for these

24. Zero-ratings for hotels • as for restaurants, basic foods are zero-rated, but restaurant food is not • not likely to be any zero-ratings for hotels: the services and goods they provide are consumed here and are therefore taxable • this is the case even when they are sold via transactions with related or unrelated non-resident management companies and travel agents/tour operators

25. Exempt c.f. taxable supplies • Sale and rent of residential property are exempt • Need for provisions to distinguish hotel or holiday accommodation from rent of private homes as principal residencee.g. need to distinguish condominium hotels from normal residential condominiums • Current draft adapted from existing rules – comments on those definitions welcomed • Regulations will deal with things like time shares (esp. where rented out by central manager)

26. Sales to non-residents • Many supplies of goods or services to offshore recipients are zero-rated exports • This doesn’t apply to supplies of rights or options (including vouchers) if the goods and services will ultimately be consumed in Antigua and Barbuda • Differences between approaches around the world relate only to the VALUE on which VAT/GST/ABST is charged • all agree that there should be a local tax burden • question is whether value added by non-resident suppliers should be taxed locally

27. Foreign Travel Agent Rights Rights Management Company Tourist (while overseas) Travels to A & B Overseas Antigua & Barbuda Tourist (in A&B) Rights Local Hotel Services & goods

28. How are these rights taxed? • Not treated as an export even though supplied to a non-resident (because the end consumption is in Antigua and Barbuda) • Tax must be applied to the transactions • Some countries require the non-resident suppliers to register and pay tax on each transaction (ensures the full consumption price paid by the tourist is taxed) • More commonly, the non-residents are left out of the tax regime • If the parties are related, market valuation rules apply

29. How are these rights taxed? • If the non-residents are not included, how much tax is collected? • One option is that the local hotel must pay ABST on the sale to the management company based on the value that will be charged to the tourist • Alternatively, this may only be required if all the suppliers are related parties: if the non-residents are unrelated entities, the local hotel can be taxed only on what it charges to the first overseas supplier • The foreign tour operator’s/travel agent’s margin is taxed where they are located.

30. ABST draft approach • There is nothing currently specified • Current intention is to include provisions dealing with this in the regulations • Current leaning towards taxing on outgoing value except where overseas suppliers are related to local hotels • Not considered feasible to require non-residents to tax in order to try to capture the full value

31. Structure of the Act • Basic provisions first – definitions then application of the law • Administrative provisions • Schedules (zero-ratings & exemptions) • Regulations – to cover transitional issues

32. What do you need to do? • identify whether you will exceed the threshold • if yes: will your supplies be taxable, exempt, zero-rated, out-of-scope, or a combination • implement systems to ensure ABST is charged on the right kinds of supplies • work out how your prices should change: subtract taxes saved and then add ABST • get ready to print invoices and documents • be prepared for submitting ABST returns

33. What do you need to do? • ensure there are appropriate links to your accounting systems to separate ABST from your income & costs • systems to capture input tax credit entitlements – to ensure you hold ABST invoices and to determine connection between inputs and any exempt or private outputs • will your customers be registered? • will your suppliers be registered? • are you record-keeping systems up to the task?